Sunday, November 13, 2011

'It's Worth What People Are Willing to Pay'

Joe Carter recently had a post about the world's most expensive photograph, which sold for $4.3 million dollars, noting also that the third, fourth, and fifth most expensive photographs are by the same artist and are different prints of the same photograph of supermarket shelves. In response to Joe's jokes about it, some commenters (you can always find humorless commentators in the "First Thoughts" comment boxes) replied that the photograph was worth whatever anyone was willing to pay for it. I put a comment there that I want to put here, because although it has some of the common weaknesses of a comment on a blog, it does convey a point that I think is important.

I find the automatic response of some commenters interesting: the claim that things are worth simply what people are willing to pay for them has the direct implication that nothing can be overpriced or underpriced; that there are no bargains and no bad deals; that, in fact, it is impossible to price anything unjustly as long as someone will pay it. Nobody actually believes such nonsense; everyone attributes value and disvalue to things by comparisons that have nothing to do with the actual price paid, and we all can make perfect sense of saying that somebody paid too much for something, or that a price is too high even if someone will pay it. The conditions under which price paid can reasonably be said to track the worth of the thing in question are not universal; in part because other things beside the thing bought can be factored into deliberation about price. Status signaling, for instance, which can at times have virtually nothing to do with the thing bought. Nor is it plausible to identify actual worth with attributed worth in the absence of any consideration of practical or moral rationality. But it is interesting how easily people will swallow such an incoherent principle, merely because they have the notion that it’s ‘economics’.

And this is actually generally true; one should never accept economic arguments without looking at what conditions they presuppose -- because they always assume that some conditions are already in place, and often rather specific conditions. They can be quite good arguments when those conditions are met but worthless when they are not. One should for the same reason be very suspicious of any economic claim put forward as completely universal; they can certainly exist, but they are always either very general principles or the work that has to be put in to show that they are genuinely universal is considerable, and needs to be done. Most good conclusions in economics are conclusions for a very specific kind of domain.

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